AMSTERDAM, Oct. 29, 2020 /PRNewswire/ -- VEON Ltd. (NASDAQ:
VEON), announces results for the quarter ended 30 September 2020.
RESULTS HIGHLIGHTS
- All operations recorded improved YoY trends compared to the
previous quarter as lockdown restrictions related to the COVID-19
pandemic eased. Reported revenue decreased by 10.4% YoY mainly due
to currency headwinds, while the local currency decline in revenue
was limited to 1.3% YoY
- The Group recorded a quarter-on-quarter increase in the total
mobile customer base with net additions of 3 million in 3Q20 to 207
million following net decline of 6 million in customers in the
second quarter period
- Strong growth in 4G users resumed: up by 20 million YoY and by
8 million QoQ, bringing total 4G users to 73 million, driving the
long-term revenue expansion of the Group. Ongoing network
investment saw 4G population coverage up 18p.p. YoY to 69%
- We recorded double-digit growth in mobile data revenue, up
13.1% YoY in local currency as customers switched back from fixed
line as lockdowns restrictions eased and with 4G user ARPUs on
average two times higher than the total customer base ARPU
- Across our digital businesses, we continue to make good
progress. JazzCash closed the quarter with 9.7 million (MAU), while
in the content area both Beeline TV in Russia and Toffee TV in Bangladesh recorded strong YoY trends
- Pakistan, Ukraine and Kazakhstan recorded double-digit EBITDA growth
which was offset by operational challenges in Russia. Reported EBITDA decreased by 9% YoY
due to currency headwinds; in local currency EBITDA increased by
0.1% YoY
- VEON recorded a non-cash impairment of USD 790 million, primarily against the carrying
value of goodwill in Russia. 3Q20
net profit before impairments was USD 145
million
- FY2020 guidance confirmed, anticipating a steady recovery in
operations, subject to the gradual lifting of lockdown measures,
and a low to mid-single-digit local currency YoY decline in both
Group revenue and EBITDA, with Capex Intensity of 22-24%
Kaan Terzioğlu and Sergi
Herrero, co-Chief Executive Officers, commented on
results:
"The third quarter saw strong sequential improvements in the
financial performance of the majority of our operating companies,
as lockdown restrictions eased in most of our markets. The Group
remains focused on operational execution and improving commercial
momentum while driving a number of initiatives across our markets
to support the significant data & digital opportunities we
enjoy.
We are pleased to see real progress on the execution of our
strategy to grow our 4G user base across all our operations and, in
doing so, support the expansion in our data and digital revenues
which together represent a meaningful opportunity for the Group to
expand revenue in the long-term.
At the end of September, we reported 4G users of 73 million,
which collectively now account for 35% of our total customer base.
But even more encouraging is that due to 4G segment growth, data
revenues increased by 13% in local currency on a YoY basis –
momentum we will strive to continue to deliver on in the coming
months.
Looking forward, as a management team, we remain excited by
the growth opportunities we enjoy as our 4G network deployment
program drives greater levels of customer engagement and digital
services adoption. In support of this, we have continued with our
focused network rollout across the Group's markets, investing an
additional $354 million in the quarter.
We remain committed to executing on our planned operational
improvements, particularly in Russia, where we continue to invest in network
quality and a growing range of digital services while focusing on
strengthening our commercial propositions for all our customers.
Elsewhere across the Group, the early-stage nature of our markets
provides us with structural growth opportunities in digital
adoption and we are well-placed to reap the benefit from these
growth opportunities as was evident in the quarter where we saw a
relatively quick recovery in the operating performance.
As a management team we have resolved to address a number of
matters in the interest of our investors, including a zero-cost
depository receipt program for NASDAQ investors and a structural
reduction in our HQ costs as we take on a new operating
model.''
KEY FIGURES
Note: in the above table EBITDA Adjusted for 9M19 excludes
special compensation of USD 38
million and other operating income of USD 350 million (for further discussion of
adjustments made for one-off and non-recurring items, see
"Non-recurring items that affect year-on-year comparisons." on page
3)
KEY RECENT DEVELOPMENTS
- In September, the Dhabi Group exercised its put option to sell
VEON its 15% shareholding in Jazz Pakistan; the transaction is
expected to close during the current financial year
- Second ruble-denominated bond issuance under the Group's Global
Medium-Term Note (MTN) program closed in September, with proceeds
of RUB 10 billion at 6.5% for
unsecured notes due in 2025
- Beeline Kazakhstan signed its
network sharing partnership in support of the rural broadband
initiative which aims to bridge the digital divide across the
country's rural initiatives
- VEON acquired strategic stake in ShopUp, Bangladesh's leading full-stack B2B commerce
platform
- Shareholders trading on Nasdaq will no longer be subject to
annual depository fee
- New governance model adopted, Chief Internal Audit &
Compliance Officer appointed
- Concluded an agreement for the sale of Armenia operations
- Yaroslav Glazunov appointed to
the Board of Directors as an alternate director for Alexander Pertsovsky
CONTENTS
MAIN
EVENTS............................................................................................................
4
GROUP
PERFORMANCE...........................................................................................
6
COUNTRY
PERFORMANCES....................................................................................
9
CONFERENCE CALL
INFORMATION.......................................................................
15
ATTACHMENTS.........................................................................................................
17
PRESENTATION OF FINANCIAL RESULTS
VEON's results presented in this earnings release are based on
IFRS unless otherwise stated and have not been audited.
Certain amounts and percentages that appear in this earnings
release have been subject to rounding adjustments. As a result,
certain numerical figures shown as totals, including those in
tables, may not be an exact arithmetic aggregation of the figures
that precede or follow them.
All comparisons are on a year on year (YoY) basis unless
otherwise stated.
The non-IFRS measures disclosed in the document, i.e. EBITDA,
EBITDA margin, EBITDA Adjusted and EBITDA Adjusted margin, Net
Debt, Equity Free Cash Flow (after licenses), Operational Capital
Expenditures, Capex Intensity, local currency measures, ARPU are
reconciled to the comparable IFRS measures in Attachment C on
page 20.
NON-RECURRING ITEMS THAT AFFECT YEAR-ON-YEAR
COMPARISONS
- In 1Q19, VEON recorded a one-off vendor payment to the Company
of USD 350 million, which was
accounted for as other income and is reflected in EBITDA.
- 2Q19 revenue and EBITDA were positively impacted by
USD 38 million received in relation
to the termination of a network sharing agreement in Kazakhstan between our subsidiary KaR-Tel LLP
and Kcell Joint Stock Company ("Kcell") following Kazakhtelecom
JSC's acquisition of 75 percent of Kcell's shares.
3Q20 EBITDA was positively impacted by USD 52 million of a reversal of a provision in
Pakistan. Please refer to Note 1
of our unaudited interim condensed consolidated financial
statements for further details.
Local currency year-on-year trends for 9M20 disclosed in this
earnings release exclude the impact of foreign currency movements
(see full definition in Attachment A) and also exclude the impact
of a USD 38 million positive one-off
item recorded in 2Q19 in revenue. The first two one-off items
listed above are excluded from the EBITDA Adjusted figure.
Pakistan revenue and EBITDA
were impacted by changes in tax and service charges related to the
Supreme Court's "suo moto order" in April
2019 and our subsequent discussions with the Pakistan
Telecommunications Authority. As of 29 October, Jazz is currently
awaiting the PTA's decision following a hearing on 25 June 2020 in which Jazz presented its case
regarding Jazz's crediting of administration fees and withdrawal of
the show cause notice issued to Jazz by the PTA. For further
background, on the "suo moto order" and the subsequent discussions
with the PTA, see our 2Q20 earnings release dated 6 August 2020.
The effect of these changes is not excluded from the local
currency year-on-year trends (except for administration fees
highlighted above), since it is wide-ranging in its impact and
applicable for a number of reporting periods, but is detailed here
for explanatory purposes.
MAIN EVENTS
The Dhabi Group exercised its put option to sell VEON its 15%
shareholding in Jazz Pakistan
On 24 September 2020, VEON's
partner in Pakistan, the Dhabi
Group, exercised its put option to sell VEON its 15% shareholding
in PMCL, the operating company of Pakistan's leading mobile operator, Jazz. The
transaction, which requires independent valuation to determine the
fair value of the shareholding, is expected to close in 4Q
2020.
Second Russian ruble-denominated bond issuance under VEON's
Global Medium-Term Note program and refinancing of VTB loan
On 11 September 2020, VEON
Holdings B.V. ("VEON Holdings"), a subsidiary of VEON Ltd. issued
RUB 10 billion (approximately
USD 135 million) 6.50% senior
unsecured notes due 2025 under its Global Medium Term Note
Programme established in April 2020
(the "GMTN Programme"), which represents the Issuer's second
Russian ruble-denominated bond offering under its GMTN Programme
and attracted strong interest from a broad range of investors
internationally. VEON used the proceeds of the notes to repay
debt.
In addition, on 9 July 2020, VEON
Holdings refinanced its existing RUB 30
billion (approximately USD 422
million) bilateral term loan agreement with VTB Bank. This
refinancing extends the maturity and reduces the cost of the
existing loan between VTB Bank and VEON Holdings.
Beeline Kazakhstan signed
network sharing partnership in support of rural broadband
initiative
On 6 October 2020, VEON announced
that its operating company in Kazakhstan, which provides services under the
Beeline brand, entered into a network sharing partnership that
unites the nation's three mobile telecom providers in the delivery
of high-speed internet to rural communities. The agreement brings
Beeline together with Kcell and Tele2 in support of the nation's
250+ project, which aims to extend high-speed internet to all
villages with a population of 250 or more. Once complete, the
project will see almost 1,000 rural settlements with a combined
population of 600,000 offered 3G and 4G connections by all three
operators.
The 250+ initiative, for which the infrastructure deployment
started immediately, enables rural residents to receive mobile
services on competitive terms and select a service provider of
their choice. In turn, each mobile operator will enjoy equal access
to the shared network.
VEON acquired strategic stake in Bangladesh's leading full-stack B2B commerce
platform, ShopUp
VEON Ventures, has joined Sequoia Capital India and Flourish
Ventures as investors in ShopUp, Bangladesh's leading full-stack B2B commerce
platform for small businesses, becoming ShopUp's first strategic
corporate investor.
The investment enables VEON Ventures to support ShopUp's
fast-growing digital ecosystem for micro, small and medium-sized
enterprises, which form a vital backbone of Bangladesh's economy, as well as providing
significant opportunities for developing mobile financial services
for ShopUp's users.
Shareholders trading on Nasdaq no longer subject to annual
depository fee
From 1 January 2021 holders of
VEON American Depositary Shares ("ADSs") trading on Nasdaq will no
longer be subject any cash dividend fee or depository service fee
of any kind. ADS holders will continue to be subject to the normal
issuance and cancellation fees.
Concluded an agreement for the sale of Armenia operations
On 29 October 2020, VEON announced
that it has concluded an agreement for the sale of CJSC "VEON
Armenia", VEON's operating subsidiary in Armenia, to Team LLC for a consideration of
USD 51 million. It is anticipated
that the transaction will close shortly.
The sale of our Armenian operations is in line with VEON's
ambition to simplify the Group's structure and enhance its
operational focus on markets with attractive long-term growth
opportunities. The value of the transaction equates to an EV/EBITDA
multiple of 2.9x based on 2019 reported EBITDA.
New Governance Model adopted
In 3Q20, in connection with our new operating model, the VEON
Board of Directors (the "VEON Board") approved a new
governance model, or Group Authority Matrix, under which the VEON
Board and the co-CEOs have delegated to each VEON operating company
considerable authority to operate their businesses. Specifically,
each operating company is accountable for operating its own
business subject to oversight by their respective operating company
boards and the VEON Board; and they are also obligated to operate
in accordance with Group policy and controls framework. The new
governance model forms the cornerstone of governance and delegation
of authority across the Group.
In October 2020, Joop Brakenhoff has been appointed to the
position of Chief Internal Audit & Compliance Officer. He
reports to co-CEOs and also has a reporting line to the Chairman of
the Audit & Risk Committee.
Yaroslav Glazunov appointed to
the Board of Directors as an alternate director for Alexander Pertsovsky
On 28 October, VEON appointed Yaroslav
Glazunov to the Company's Board of Directors as an alternate
director for Alexander Pertsovsky.
Mr. Pertsovsky has been a member of the VEON Board since
January 2018. Mr. Glazunov joined
Spencer Stuart in January 2014 and is a managing partner at Spencer
Stuart International based in Moscow. Prior to joining Spencer Stuart, he was a partner at Heidrick
& Struggles in Moscow. He has
been in the global leadership advisory business for 20 years,
focusing on CEO succession, efficiency and performance. As a
partner at one of the top worldwide leadership consulting firms, he
has worked extensively with corporate boards and founders of
companies in Europe, India and Russia. He holds a master's degree in
management from Plekhanov University. He previously completed a
leadership program at INSEAD in Fontainebleau, France, and an executive program at
Singularity University in Silicon Valley, California.
FY 2020 guidance maintained
VEON confirms FY 2020 financial guidance and anticipates a low
to mid-single-digit local currency YoY decline in both Group
revenue and EBITDA, and Capex Intensity of 22-24%. Our guidance
assumes that the gradual lifting of lockdown measures in VEON's
operating markets will continue, supporting a steady recovery in
operations in the remainder of the financial year. The YoY change
anticipated in this guidance excludes 2019 exceptional items;
namely, other operating income of USD 350
million related to one-off vendor payment recorded in 1Q19
and special compensation of USD 38
million received in Kazakhstan recorded in 2Q19. VEON's management
anticipates no dividend payment for FY2020.
GROUP PERFORMANCE
Although VEON's operations remained impacted by lockdown
measures throughout 3Q20, a gradual lifting of restrictions enabled
the commencement of more normalized economic activity and a
sequential recovery in the performance of our operating markets. As
a result, we recorded strong QoQ improvements in revenue and EBITDA
in 3Q20.
All our countries still face some restrictions on travel, which
have impacted roaming revenues and led to the loss of migrant
customers from our subscriber base, particularly in Russia. Conversely, demand for our data
services remains strong, enabling us to continue to grow our data
revenues at a double-digit pace.
In 3Q20 reported total revenue decreased by 10.4% YoY
mainly due to currency headwinds. In local currency terms total
revenue decreased by 1.3% YoY. All VEON operations improved YoY
trends in 3Q20 compared to the YoY dynamics reported in 2Q20 as
strict lockdowns were lifted in all of our geographies.
Russia continued to report a
decline in revenue as a result of a 68% YoY fall in roaming due to
travel restrictions, as well as a YoY decrease in customer numbers.
However, reinvestment in our network in Russia continued and we anticipate further
improvement in operational KPIs including network performance
metrics and subscriber trends in the first half of 2021 with
positive YoY growth in Russian total revenue during the period.
Pakistan, Ukraine and Kazakhstan recorded double-digit revenue YoY
local currency growth in 3Q20. Bangladesh is back to positive YoY revenue
growth in local currency in 3Q20 and while Algeria's revenue is still declining YoY in
3Q20, the company is outperforming its competitors in what remains
a challenging market.
EBITDA decreased by 9% YoY in 3Q20, due to currency
headwinds. In local currency terms EBITDA increased by 0.1% YoY, as
Ukraine and Kazakhstan recorded double-digit EBITDA YoY
local currency growth, while Pakistan 3Q20 EBITDA includes a positive
one-off item of USD 52 million
related to the reversal of a provision. In 3Q20 Russia EBITDA was
negatively affected by decreases in revenue and higher network
costs as a result of an aggressive 4G network rollout. Algeria and Bangladesh significantly improved YoY local
currency dynamics in EBITDA in 3Q20 compared to 2Q20. Group EBITDA,
excluding the positive one-off item of USD 52 million discussed above, declined by 5.5%
YoY in local currency.
VEON's HQ and elimination segment consists largely of corporate
costs. As a result of the new operating model that has been
implemented with a lean, small HQ, the costs of this segment
declined significantly.
For the table with performance by country see page 9, where
"Other" includes the results of Kyrgyzstan, Georgia and Armenia.
INCOME STATEMENT & CAPITAL EXPENDITURES
Note: prior year comparatives for capital expenditures
are adjusted to reflect correct IFRS 16 impact of prior
periods.
For discussion on EBITDA performance discussion please refer to
the "Group performance" section.
Depreciation and amortization charges were broadly stable
YoY. Impairments of USD 790
million in 3Q 2020, of which USD 723
million of goodwill in Russia.
Goodwill is tested for impairment annually (at October 1) or when circumstances indicate the
carrying value may be impaired. When reviewing for indicators of
impairment in interim periods, the Company considers, amongst
others, the relationship between its market capitalization and its
book value, as well as weighted average cost of capital and the
quarterly financial performances of each cash-generating unit. In
addition to the above, the Company also considered the impact of
COVID-19 when reviewing for indicators of impairment (refer Note 1
in the Financial Statements for 9 months 2020 for further details).
For further details regarding calculations and assumptions used for
impairment testing, refer to the Group's audited annual
consolidated financial statements as of and for the year ended
December 31, 2019.
In recent years, Beeline Russia has seen a decline in its
subscriber and revenue market share on the back of competitive
pressures in the market, which have impacted both revenues and
profitability. This underperformance has negatively impacted the
fair value of our Russian business, and over time has eroded the
existing headroom over the book value of the business. The impact
of a weaker Russian RUB, along with ongoing COVID lockdowns and the
associated travel restrictions, have had a negative impact on
consumer spending, which weakened during the quarter. Together with
a slower than anticipated recovery in Beeline's ARPU, which has in
turn impacted our future projected revenue, as well as the low
market capitalization of the Group, a revision to our previous
estimates has been deemed necessary.
Based on these revisions, VEON recorded an impairment of
USD 723 million against the carrying
value of goodwill in Russia in the
third quarter of 2020. Management anticipates further improvement
in operational KPIs including network performance metrics and
subscriber trends in the first half of 2021 with positive YoY
growth in Russian total revenue during the period.
Financial income and expenses decreased YoY as a
result of a lower average cost of debt. At the end of 3Q20, average
cost of debt was 6.1%, which is 119bps lower compared to average
cost of debt at the end of 3Q19.
Income tax expense increased by 11% YoY in line with
year-on-year change in net profit excluding non-tax deductible
impairments.
The group recorded loss for the period of USD 645 million, mainly due to non-cash
impairments described above. Profit for the period, before
non-cash impairments was USD 145
million, a 20% YoY increase, mainly as a result of lower
interest expenses.
Operational Capex was USD 354
million in 3Q20, up from the USD 324
million recorded in 3Q19, due mainly to VEON's focus on its
4G network investment program. Capex intensity over the last twelve
months was 21.8%.
FINANCIAL POSITION & CASH FLOW
Note: Certain comparative amounts have been reclassified to
conform to the current period presentation
Total assets and shareholders' equity decreased QoQ
mainly due to impairments described above.
Gross debt decreased in 3Q20 compared to 2Q20 as a
result of depreciation of the RUB against the USD and as a result
of a net repayment of debt, including all amounts outstanding under
VEON's Revolving Credit Facility. In July
2020, VEON Holdings refinanced its existing RUB 30 billion (approximately USD 422 million) bilateral term loan agreement
with VTB Bank. In September, VEON Holdings B.V. issued a
RUB 10 billion (approximately
USD 135 million) 6.50% senior
unsecured notes due 2025, under its GMTN Programme. VEON used the
proceeds of the notes as well as available liquidity to repay
debt.
Net debt (excluding lease liabilities) decreased QoQ
in 3Q20 to USD 5,901 million due to
foreign exchange movements and improvements in operations and
EBITDA as strict lockdown measures were eased across our markets.
As a result, the net debt (excl. lease liabilities) to LTM EBITDA
ratio was 1.9x in 3Q20.
Net cash from operating activities was broadly
stable in 3Q20 against the previous year, as negative headwinds in
EBITDA were offset by positive movements in working capital.
Net cash flow used in investing activities was
USD 386 million in 3Q20 is a result
of the Group investment in high-speed data networks. Net cash flow
used in investing activities in Q3 2019 was affected by the release
of the GTH MTO settlement deposit of USD 668
million, offset by the payment of 50% of the disputed
license renewal fee in Pakistan
(approximately USD 225 million) as
security (under protest) in order to maintain its appeal in the
Islamabad High Court regarding the PTA's underlying decision on the
license renewal.
Net cash used in financing activities was
USD 613 million in 3Q20, primarily as
a result of movements in the gross debt as described
above.
COUNTRY PERFORMANCE
- Russia
- Pakistan
- Ukraine
- Kazakhstan
- Uzbekistan, Algeria and Bangladesh
Key figures by countries
RUSSIA
The key focus of the Beeline Russia team remains investing in
the customer experience including digital services while
stabilising the business' operating performance as we anticipate
further improvement in operational KPIs including network
performance metrics and subscriber trends in the first half of 2021
with positive YoY growth in Russian total revenue during the
period.
Total revenue declined by 7% YoY, which is a slight
improvement compared to the previous quarter (decline of 10% YoY in
2Q20), principally as a result of an increase in handsets sales
once most stores were reopened. Mobile service revenue
declined by 10% YoY which reflected a 68% YoY decline in roaming
revenue (which was 4.0% of service revenue in 3Q19) due to travel
restrictions and a decline in content revenue by 21% YoY as Beeline
is taking measures to eliminate unrequested services from content
providers to its customers, which has proven to have a positive
impact on the Net Promoter Score. These were partially offset by
positive YoY performance in fixed-line service revenue, which
grew by 9% YoY, as customers continued to draw on fixed-line
data at home.
Business customers remained a strong focus, with B2B
revenue increasing by 4.8% YoY as Beeline continued to enhance
its offering with new digital offers and solutions. With a
significant portion of B2B customers still working from home,
Beeline's BeeFree product, which provides IT, communications and
HR-solutions based on a Workplace-as-a-Service concept, remained
popular. In addition, Big Data (including Artificial Intelligence)
revenue grew by 103.7% YoY mainly driven by expansion of geo- and
video analytical services. In September, Beeline acquired the
telecom operator WestCall, which operates in Moscow with a
portfolio of FTTB, IP and Cloud solutions, serving almost 10,000
partners.
Beeline's total mobile customer base declined by 9%
YoY in 3Q20, due to the previous network quality and service issues
that affect customer perception. However, Beeline managed to
stabilise customer numbers which ended the quarter broadly flat
versus 2Q20. Beeline Russia is
successfully growing its 4G user base, which expanded by 10% YoY in
Q3, helped by a switch back to high-speed mobile data networks
after last quarter's strict lockdowns.
Beeline TV monthly active users increased to 2.5 million in 3Q20
(41% YoY). In 3Q20 Beeline launched a new content offer, as well
as, targeted customer propositions.
Beeline focuses its distribution through online channels with a
focus on self-registration products. The self-care monthly active
users increased by 33% YoY, which reflects Beeline efforts to move
to the new distribution model with application as e-shop concept.
In line with the plans to enhance retail efficiency and place a
greater emphasis on online retail distribution, Beeline has
permanently closed a total of 637 stores over the last twelve
months. Beeline does not have any immediate plans to close further
retail stores, though the company expects the rising trend of
online sales and potentially to positively affect the overall
market to enable a more balanced and cost-efficient distribution
footprint with fewer retail points in the future.
EBITDA decreased by 18% YoY, primarily driven by lower
revenue, as well as higher structural costs in relation to the
increased network investment and higher interconnection
costs due to the increased ratio of off-net traffic. In
addition, in 3Q19, Beeline reversed certain provisions which also
had a negative impact on YoY comparisons.
Capex excluding licenses increased by 37.2% YoY in
3Q20. Capex intensity was 28%, reflecting continued high
levels of network investment throughout 3Q20. Beeline increased the
number of 4G base stations by 23% YoY as at 30 September 2020. A strong separate focus was
maintained on major cities, particularly Moscow and St.
Petersburg, to ensure high quality infrastructure that is
ready to integrate new technologies. In Moscow, data speeds in 4G network improved by
18%, alongside the roll-out of 5G-ready equipment and 4G launch in
the Moscow subway. Nationwide 4G
population coverage increased to 87% (versus 84% in 3Q19) as
Beeline remained committed to ongoing investments in network
improvement in order to provide customers with consistently high
levels of service irrespective of their location.
UKRAINE
Kyivstar continues to demonstrate double-digit growth in both
revenue and EBITDA driven by the continued focus on 4G connectivity
and digitalizing solutions for its customers. While the medium-term
outlook remains encouraging there is some caution over the
immediate short-term given the uncertainty of further COVID-19
restrictions with an adaptive quarantine in place until the end of
2020.
Total revenue for Kyivstar returned to double-digit
growth, up 12% YoY in 3Q20, mainly as a result of ARPU expansion on
the back of strong 4G adoption, which accelerated after the
lockdown eased and users turned back to mobile data. Mobile service
revenue increased by 11% YoY, supported by the marketing activities
and strong growth in data consumption, resulting in mobile data
revenue growth of 23% YoY. In 3Q20, fixed-line service revenue
increased by 20% YoY, as customers continued to draw on fixed-line
data at home, while Kyivstar focused on FTTB rollout to address
this growing demand.
The revenue from the B2B segment increased by 3% YoY in
3Q20, as the Company introduce new digital solutions for its
business customers. Kyivstar is now offering Microsoft Azure Stack,
one of the most popular cloud services for business, that allows
the transfer of computing of almost any complexity to remote
facilities. For medium, small and start-up companies Kyivstar
announced Open Application Programming Interfaces (Open API), a
unique platform in the market, developed fully in-house. By
offering Open API Kyivstar can provide developers with data,
analytics, scoring capabilities and services in a user-friendly
environment.
Kyivstar's total mobile customer base showed a YoY
decline due to the lower gross additions during 2Q20 when the
strict lockdown measures resulted in the partial closure of
Kyivstar stores. In 3Q20, Kyivstar demonstrated growth of 2%
compared to 2Q20, which was supported by the strong growth in the
4G segment with users up 21% QoQ. As a result, data penetration
continued to increase, with 4G user base penetration of 36%, and
total 4G users at 9.4 million in 3Q20, representing a significant
YoY increase of 50%. The growth in the 4G users and the associated
increase in data usage drove an ARPU increase of 15% YoY.
Recent lockdowns have accelerated digital adoption. In
3Q20, the number of MyKyivstar self-care users was at 2.3 million,
which was up 52% YoY while for the Kyivstar TV service has recorded
250,000 users, reflecting a YoY increase of 37%.
EBITDA increased by 17% YoY, resulting in an EBITDA
margin of 68%. This strong growth in EBITDA was supported by the
solid revenue performance in the quarter as well as lower
commercial costs, which were partially offset by higher structural
opex.
While Capex excluding licenses decreased by 14% YoY,
capex excluding licenses in the 9 months YTD has increased by some
23% YoY with Capex intensity of 24% in 3Q20. Kyivstar's strategic
focus included further 4G roll-out during the quarter, driving 4G
population coverage of 84%. Kyivstar and Vodafone continue with 4G
mobile network sharing in rural areas and on highways.
PAKISTAN
Jazz delivered a strong quarter, reporting solid growth in
revenues amid encouraging signs of recovery following 2Q'20
lockdowns. In Pakistan, which we
consider to be one of most exciting markets in our portfolio, Jazz
continued its strategic focus of expanding its digital services to
drive further growth.
Total revenue growth of 12% YoY includes the
administration fee reversal recorded in 3Q19 relating to the 'suo
moto order' tax regime changes (see detailed description in the
section "Non-recurring items that affect year-on-year comparisons"
on page 4). Adjusting for these, revenues grew by 7% YoY. This rise
was underpinned by another strong quarter for mobile data revenue,
which grew by 25% YoY. Expansion in our 4G user base led this
growth, increasing during the quarter by 3 million new users as the
relaxation of lockdown restrictions encouraged strong growth in 4G
SIM sales, which grew by 37% (compared to 2Q20). Jazz's 4G
penetration rate reached 35% during the quarter, a marked
acceleration from the 30% penetration recorded in 2Q20 and a
rise of 70% in 4G users versus 3Q19.
Additional users contributed to an almost 9% expansion in Jazz's
total customer base during the quarter to 64 million, as
well as an encouraging rise in ARPU of 3% YoY. These trends reflect
Jazz's commercial strategy of focusing on higher quality of sales
in order to further improve the customer mix of its subscriber
base, leveraging network quality and higher bundle penetration to
drive this.
Our leading digital financial services business in
Pakistan, JazzCash, experienced
another strong quarter. The impact of the State Bank of
Pakistan's temporary removal of
fees on money transfers impacted JazzCash's total revenues, which
declined by 8.7% YoY, but operationally the business continued to
enjoy strong momentum. JazzCash's user base saw double-digit
growth, exiting the quarter with 9.7 million monthly active users
(up 56% YoY) and 23 million registered wallets (+46% YoY), and is
on track to surpass the 10 million monthly active user milestone in
early-4Q20.
Jazz's self-care app, Jazz World,
continued to enjoy strong levels of customer adoption. Its monthly
active user base is up 158% YoY, reaching 6.6 million and cementing
its position as the largest telecom app in Pakistan. Our content services also enjoyed
further growth, with Jazz TV's monthly active user base rising to
over 1 million, representing YoY growth of 85%.
EBITDA increased by 41% YoY, mainly due to the
reversal of a prior period provision in 3Q20 of PKR 8.6 billion. Excluding this, EBITDA growth
was 2.4% YoY, supported by revenue growth (including the
administration fee reversal mentioned above). In addition, as in
the prior periods, in 3Q20 EBITDA was affected by the
re-classification of amortization of the Ex-Warid license from
below EBITDA to service costs (PKR 0.7
billion) in connection with a payment made in the form of
security (under protest) as per the options given in the PTA's
license renewal order.
Capex excluding licenses was PKR
3.7 billion in 3Q20, equivalent to capex intensity of 20.1%
versus 14.1% in 3Q19. Within this, 4G network investment continued
to be the principal focus, the population coverage of which reached
56% during the quarter, compared to 49% in 3Q19.
The ex-Warid license renewal was due in May 2019. Pursuant to the directions from
Islamabad High Court, the Pakistan Telecommunication Authority
("PTA") issued a license renewal decision on 22 July 2019 requiring payment of USD 39.5 million per MHz for 900 MHz spectrum and
USD 29.5 million per MHz for 1800 MHz
spectrum, equating to an aggregate price of approximately
USD 450 million (excluding
advance tax of 10%). On 17 August
2019, Jazz appealed the PTA's order to the Islamabad High
Court. On 21 August 2019, the
Islamabad High Court suspended PTA's order pending the outcome of
the appeal and subject to Jazz making payment in the form of
security (under protest) as per the options given in the PTA's
order. In September 2019, Jazz
deposited approximately USD 225
million in order to maintain its appeal in the Islamabad
High Court regarding the PTA's underlying decision on the license
renewal. There were no specific terms and conditions attached to
the deposit. On 18 May 2020, Jazz
deposited a further payment of USD 57.5
million (under protest) as security. The Court heard
arguments on 21 October 2020 and the
matter has been adjourned for a further hearing on 29 October 2020.
KAZAKHSTAN
Beeline Kazakhstan continues to
be one of our fastest-growing markets in VEON's portfolio
underpinned by strong demand for data services. Beeline continued
to focus on customer base value management throughout the quarter
in order to minimise rotational churn and drive customer
acquisitions amongst high-value users. Complementing this was an
ongoing focus on the delivery of a growing range of digital
services via Beeline's expanding 4G network.
Reported revenues grew by 14.4% YoY, underpinned by
mobile service revenue growth of 9.0%. Data revenue grew 35.3% YoY,
which continued to drive increase in total revenues, as Beeline
accelerated the growth of its 4G user base (+21% YoY), which
reached 50% of its total customer base for the first time during
the quarter. This, in turn, was facilitated through a further
expansion of Beeline's 4G network which now reaches 75% of the
nation's population.
Demand for Beeline's digital services remained strong
throughout 3Q20. Beeline TV saw its monthly active user base (MAU)
double YoY and our MyBeeline self-care app recorded a 94% rise in
MAUs YoY. Beeline's dedicated
digital operator and mobile OTT services provider 'Izi' also saw
further growth in its customer base and remains on track to roughly
double this from current levels to 50,000 users by the end of 4Q20.
Elsewhere, Beeline continues to connect new agents to the company's
mobile financial services platform. As a result, the wallet users
grew by 59% YoY in 3Q20.
Despite the strong growth in Beeline's 4G customers, total
customers fell by 5% YoY during the quarter: a trend that
continues to reflect the impact of IMEI registration on the
industry's user base following its formal introduction in
November 2019. In the meantime, IMEI
had a positive impact on customer churn, which fell from 54% in
3Q19 to 28% in 3Q20, alongside Beeline's broader commercial
initiatives to reinforce its customer proposition and leading
market position. Longer term, IMEI registration requirement is
expected to benefit Beeline by improving the quality of the
company's customer base by removing multi-SIM users and zero-ARPU
customers.
Fixed-line service revenues remained strong during the quarter,
growing by 37.6% YoY and underpinned by a further increase in our
fixed broadband customer base of 15.2% YoY. Rising popularity of
our convergent products contributed to this success, the customer
base of which grew by 46,000 (+111% YoY) with approximately 19% of
our fixed-line customers now using convergent products.
EBITDA rose by 17.3% YoY, driving a 1.3p.p.
expansion in EBITDA margin to 52.9%, as a result of strong revenue
performance.
Capex excluding licenses was KZT 7.2 billion and Capex intensity was 24.4%. In
3Q20 investments were mainly focused on expanding Beeline's 4G
network in order to satisfy the continued rise in high-speed data
demand that characterises this growth market. The YoY increase
in Capex excluding licenses is explained by low Capex in 3Q19 due
to phasing with a significant increase in spending in 2019 for
rollout a quarter earlier than planned, in 2Q19, after the
termination of a network sharing agreement with Kcell and other
factors related to IFRS16.
UZBEKISTAN
|
Although strict
lockdown restrictions related to the COVID-19 pandemic were eased
In Uzbekistan, the situation continued to have an impact on the
business and pricing pressure persisted. As a result, the customer
base and revenue declined by 18.5% YoY and 17.1% YoY, respectively.
3Q20 EBITDA was negatively affected by a certain provision of UZS
155 billion.
Further improvements to
our high-speed data networks will continue to be a priority for
Beeline Uzbekistan as we move forward and increasing mobile data
penetration continues to be the key long-term growth driver for us
in the Uzbekistan market.
|
ALGERIA
|
In Algeria, in an
overall declining market, competition remained aggressive. Against
this backdrop, Djezzy continued its segmented approach driving up
its revenue market value while preserving and strengthening its
share in the mass market segment. Djezzy repositioned itself
towards a younger demographic through a digital-centric value
proposition. The 5.7% YoY 3Q20 decline in revenue is explained by
two factors: the 29% reduction in Djezzy's MT rate (from DZD 0.95
per minute down to 0.67) implemented by the Algerian
Telecommunication Regulatory Authority in November 2019 as they
reintroduced asymmetry, with Djezzy suffering the greatest impact;
as well as the overall economic slowdown, due to the
pandemic.
|
BANGLADESH
|
Banglalink maintained
solid operational momentum during the quarter with improvement in
both revenue and EBITDA resulting in a positive YoY performance in
3Q20 compared to a YoY decline which was reported in 2Q20. Enhanced
4G network supported a 20.2% YoY growth in data revenue. Banglalink
continued to actively promote the use of digital channels to
facilitate top-ups, account management and the adoption of
additional services. As a result, the user base of
Banglalink's self-care app increased by 33.4% during 3Q20 compared
to 2Q20 while Banglalink's video streaming app "Toffee" gained 1.5
million customers in nine months.
The Bangladesh tax
authority introduced several changes to the local tax regime in
June 2020. These include supplementary duty on mobile usage, which
increased from 10% to 15%; an increase in the required deposit for
filing an appeal to certain authorities' from 10% to 20% of the
disputed tax; and a VAT Rebate on telecom equipment and
accessories.
|
CONFERENCE CALL INFORMATION
On 29 October 2020, VEON will host
a conference call by senior management at 14:00 CET (13:00
GMT), which will be made available through following dial-in
numbers. The call and slide presentation may be accessed
at http://www.veon.com.
14:00 CET investor and analyst conference call
US dial-in
number:
+1 646 787 12
26
Confirmation ID:
8495915
UK and International
dial-in number:
+44 (0) 203
0095709
Confirmation ID:
8495915
The conference call
replay and the slide presentation webcast will be available for 12
months after the end of the event at the same link as the live
webcast.
The slide
presentation will also be available for download from VEON's
website.
CONTACT
INFORMATION
INVESTOR
RELATIONS
Nik
Kershaw
ir@veon.com
|
|
DISCLAIMER
This press release contains "forward-looking statements", as the
phrase is defined in Section 27A of the U.S. Securities Act of
1933, as amended, and Section 21E of the U.S. Securities Exchange
Act of 1934, as amended. These forward-looking statements may be
identified by words such as "may," "might," "will," "could,"
"would," "should," "expect," "plan," "anticipate," "intend,"
"seek," "believe," "estimate," "predict," "potential," "continue,"
"contemplate," "possible" and other similar words. Forward-looking
statements include statements relating to, among other things,
VEON's plans to implement its strategic priorities, including
operating model and development plans, among others; anticipated
performance and guidance for 2020, including VEON's ability to
sufficient cash flow; VEON's assessment of the impact of the
COVID-19 pandemic on its current and future operations and
financial condition; future market developments and trends;
operational and network development and network investment,
including expectations regarding the roll-out and benefits of
3G/4G/LTE networks, as applicable; spectrum acquisitions and
renewals; the effect of the acquisition of additional spectrum on
customer experience; VEON's ability to realize the acquisition and
disposition of any of its businesses and assets and to execute its
strategic transactions in the timeframes anticipated, or at all;
VEON's ability to realize financial improvements, including an
expected reduction of net pro-forma leverage ratio following the
successful completion of certain dispositions and acquisitions; our
dividends; and VEON's ability to realize its targets and commercial
initiatives in its various countries of operation. The
forward-looking statements included in this press release are based
on management's best assessment of VEON's strategic and financial
position and of future market conditions, trends and other
potential developments. These discussions involve risks and
uncertainties. The actual outcome may differ materially from these
statements as a result of further unanticipated developments
related to the COVID-19 pandemic, such as the effect on consumer
spending, that negatively affected VEON's operations and financial
condition; demand for and market acceptance of VEON's products and
services; our plans regarding our dividend payments and policies,
as well as our ability to receive dividends, distributions, loans,
transfers or other payments or guarantees from our subsidiaries;
continued volatility in the economies in VEON's markets; including
adverse macroeconomic developments caused by recent volatility in
oil prices in the wake of COVID-19; unforeseen developments from
competition; governmental regulation of the telecommunications
industries; general political uncertainties in VEON's markets;
government investigations or other regulatory actions; litigation
or disputes with third parties or other negative developments
regarding such parties; the impact of export controls and laws
affecting trade and investments on our and important third-party
suppliers' ability to procure goods, software or technology
necessary for the services we provide to our customers; risks
associated with data protection or cyber security, other risks
beyond the parties' control or a failure to meet expectations
regarding various strategic priorities, the effect of foreign
currency fluctuations, increased competition in the markets in
which VEON operates and the effect of consumer taxes on the
purchasing activities of consumers of VEON's services. Certain
other factors that could cause actual results to differ materially
from those discussed in any forward-looking statements include the
risk factors described in VEON's Annual Report on Form 20-F for the
year ended December 31, 2019 filed
with the U.S. Securities and Exchange Commission (the "SEC") and
other public filings made by VEON with the SEC. Other unknown or
unpredictable factors also could harm our future results. New risk
factors and uncertainties emerge from time to time and it is not
possible for our management to predict all risk factors and
uncertainties, nor can we assess the impact of all factors on our
business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Under no circumstances
should the inclusion of such forward-looking statements in this
press release be regarded as a representation or warranty by us or
any other person with respect to the achievement of results set out
in such statements or that the underlying assumptions used will in
fact be the case. Therefore, you are cautioned not to place undue
reliance on these forward-looking statements. The forward-looking
statements speak only as of the date hereof. We cannot assure you
that any projected results or events will be achieved. Except to
the extent required by law, we disclaim any obligation to update or
revise any of these forward-looking statements, whether as a result
of new information, future events or otherwise, after the date on
which the statements are made, or to reflect the occurrence of
unanticipated events. Furthermore, elements of this press release
contain or may contain, "inside information" as defined under the
Market Abuse Regulation (EU) No. 596/2014.All non-IFRS measures
disclosed further in this press release (including, without
limitation, EBITDA, EBITDA margin, EBT, net debt, equity free cash
flow after licenses (excluding capitalized leases), local currency
growth, capital expenditures excluding licenses and LTM (last
twelve months) capex excluding licenses/revenue) are reconciled to
comparable IFRS measures in Attachment C to this earnings release.
In addition, we present certain information on a forward-looking
basis. We are not able to, without unreasonable efforts, provide a
full reconciliation to IFRS due to potentially high variability,
complexity and low visibility as to the items that would be
excluded from the comparable IFRS measure in the relevant future
period, including, but not limited to, depreciation and
amortization, impairment loss, loss on disposal of non-current
assets, financial income and expenses, foreign currency exchange
losses and gains, income tax expense and performance transformation
costs, cash and cash equivalents, long - term and short-term
deposits, interest accrued related to financial liabilities, other
unamortized adjustments to financial liabilities, derivatives, and
other financial liabilities.
ABOUT VEON
VEON is a NASDAQ and Euronext Amsterdam-listed global provider
of connectivity and digital services, headquartered in Amsterdam. Our vision is to empower customer
ambitions through technology, acting as a digital concierge to
guide their choices and connect them with resources that match
their needs.
For more information visit: http://www.veon.com
CONTENT OF THE ATTACHMENTS
Attachment A Definitions 18
Attachment
B
Customers
20
Attachment
C
Reconciliation
tables
20
Attachment
D
Average rates of functional currencies to
USD
24
For more information on financial and operating data for
specific countries, please refer to the supplementary file
Factbook3Q2020.xls on VEON's website at
http://veon.com/Investor-relations/Reports--results/Results/.
ATTACHMENT A: DEFINITIONS
ARPU (Average Revenue Per User) measures the
monthly average revenue per mobile user. We generally calculate
mobile ARPU by dividing our mobile service revenue during the
relevant period, including data revenue, roaming revenue, MFS and
interconnect revenue, but excluding revenue from connection fees,
sales of handsets and accessories and other non-service revenue, by
the average number of our mobile customers during the period and
dividing by the number of months in that period.
Mobile data customers are mobile customers who have
engaged in revenue generating activity during the three months
prior to the measurement date as a result of activities including
USB modem Internet access using 2.5G/3G/4G/HSPA+ technologies.
Capital expenditures (capex) are purchases of new
equipment, new construction, upgrades, licenses, software, other
long-lived assets and related reasonable costs incurred prior to
intended use of the non-current asset, accounted at the earliest
event of advance payment or delivery. Long-lived assets acquired in
business combinations, are not included in capital expenditures.
Capex intensity is a ratio, which is calculated as LTM capex
divided by LTM revenue.
Operational capital expenditures (operational
capex) calculated as capex, excluding purchases of new
spectrum licenses and capitalised leases. Operational capex
intensity is a ratio, which is calculated as LTM capex divided
by LTM revenue.
EBIT or Operating Profit is calculated as EBITDA
plus depreciation, amortization and impairment loss. Our management
uses EBIT as a supplemental performance measure and believes that
it provides useful information of earnings of the Company before
making accruals for financial income and expenses and net foreign
exchange (loss)/gain and others. Reconciliation of EBIT to net
income attributable to VEON Ltd., the most directly comparable IFRS
financial measure, is presented in the reconciliation tables
section in Attachment C below.
EBITDA (called Adjusted EBITDA in the Form 20-F
published by VEON) is a non-IFRS financial measure. VEON calculates
Adjusted EBITDA as (loss)/profit before interest, tax,
depreciation, amortization, impairment, gain / loss on disposals of
non-current assets, other non-operating gains / losses and share of
profit / loss of joint ventures and associates Our Adjusted EBITDA
may be used to evaluate our performance against other
telecommunications companies that provide EBITDA.
Additionally, a limitation of EBITDA's use as a performance
measure is that it does not reflect the periodic costs of certain
capitalized tangible and intangible assets used in generating
revenue or the need to replace capital equipment over time.
Reconciliation of EBITDA to net income attributable to VEON Ltd.,
the most directly comparable IFRS financial measure, is presented
in the reconciliation tables section in Attachment C below.
EBITDA margin is calculated as EBITDA divided by
total revenue, expressed as a percentage.
Gross Debt is calculated as the sum of long-term
notional debt and short-term notional debt including capitalised
leases.
Equity free cash flow (excluding licenses) is a non-IFRS
measure and is defined as free cash flow from operating activities
less cash flow used in investing activities, excluding M&A
transactions, capex for licenses, inflow/outflow of deposits,
financial assets and other one-off items. Reconciliation to the
most directly comparable IFRS financial measure, is presented in
the reconciliation tables section in Attachment C below.
A fixed-mobile convergence customer (FMC customer)
is a customer on a one month Active Broadband Connection
subscribing to a converged bundle consisting of at least fixed
internet subscription and at least one mobile SIM.
Mobile financial services (MFS) of Digital financial services
(DFS) is a variety of innovative services, such as mobile
commerce or m-commerce, that use a mobile phone as the primary
payment user interface and allow mobile customers to conduct money
transfers to pay for items such as goods at an online store,
utility payments, fines and state fees, loan repayments, domestic
and international remittances, mobile insurance and tickets for air
and rail travel, all via their mobile phone.
Mobile customers are generally customers in the
registered customer base as at a given measurement date who engaged
in a mobile revenue generating activity at any time during the
three months prior to such measurement date. Such activity includes
any outgoing calls, customer fee accruals, debits related to
service, outgoing SMS and MMS, data transmission and receipt
sessions, but does not include incoming calls, SMS and MMS or
abandoned calls. Our total number of mobile customers also includes
customers using mobile internet service via USB modems and
fixed-mobile convergence ("FMC").
Net debt is a non-IFRS financial measure and is
calculated as the sum of interest bearing long-term debt including
capitalised leases and short-term notional debt minus cash and cash
equivalents, long-term and short-term deposits. The Company
believes that net debt provides useful information to investors
because it shows the amount of notional debt outstanding to be paid
after using available cash and cash equivalents and long-term and
short-term deposits. Net debt should not be considered in isolation
as an alternative to long-term debt and short-term debt, or any
other measure of the Company financial position. Net debt
excluding lease obligations is a net debt less capitalised
leases.
Net foreign exchange (loss)/gain and others
represents the sum of Net foreign exchange (loss)/gain, VEON's
share in net (loss)/gain of associates and Other (expense)/income
(primarily (losses)/gains from derivative instruments) and is
adjusted for certain non-operating losses and gains mainly
represented by litigation provisions.
Net Promoter Score (NPS) is the methodology VEON
uses to measure customer satisfaction.
Local currency trends (growth/decline) in revenue
and EBITDA are non-IFRS financial measures that reflect changes in
Revenue and EBITDA, excluding foreign currency movements and other
factors, such as businesses under liquidation, disposals, mergers
and acquisitions. For other factors please refer to section
"non-recurring items that affect year-on-year comparisons".
VEON's reportable segments are the following, which
are principally based on business activities in different
geographical areas: Russia,
Pakistan, Algeria, Bangladesh, Ukraine, Uzbekistan, Kazakhstan and HQ based on the business
activities in different geographical areas.
Total revenue in this document is fully comparable
with Total operating revenue in our Management's Discussion and
Analysis of Financial Condition and Results of Operations" provided
separately on Form 6-K.
ATTACHMENT B: CUSTOMERS
ATTACHMENT C: RECONCILIATION TABLES
RECONCILIATION OF CONSOLIDATED EBITDA
RECONCILIATION OF CAPEX
RECONCILIATION OF ORGANIC AND REPORTED GROWTH RATES
1 In 2Q19 exceptional item of a one-off payment
of USD 38 million received in 2Q19 in
relation to the termination of a network sharing agreement in
Kazakhstan between our subsidiary
KaR-Tel LLP and Kcell Joint Stock Company ("Kcell") following
Kazakhtelecom JSC's acquisition of 75 percent of Kcell's shares and
a one-off vendor payment of USD 350
million received in 1Q19.
RECONCILIATION OF VEON CONSOLIDATED NET DEBT
RECONCILIATION OF EQUITY FREE CASH FLOW AFTER
LICENSES
EBITDA RECONCILIATION ON COUNTRY LEVEL
3Q 2020
9M 2020
1 Equity free cash flow after licenses
(excluding capitalized leases) is a non-IFRS measure and is defined
as free cash flow from operating activities less repayment of lease
liabilities and cash flow used in investing activities, excluding
M&A transactions, inflow/outflow of deposits, financial assets,
other one-off items
RATES OF FUNCTIONAL CURRENCIES TO USD
Please see link for VEON's full 3Q20 Financial Results:
https://mma.prnewswire.com/media/1323026/3Q20_ER_Final.pdf
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SOURCE VEON Ltd